Connected Research

Union policy research in the 21st century

Tobin, updated

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The Tobin Tax was first proposed by Nobel Laureate economist James Tobin in 1972 as a levy designed to deter currency speculation (although he was building on the wider financial transactions tax proposed by Keynes back in 1936). Some sort of financial transactions tax has been back on the political and economic agenda in recent times as a way of dealing with one aspect of the conditions which have led to this last economic crisis (and, frankly, as a means of getting the bankers to pay (back) their share). The wiki entry on the Tobin Tax is good on the background and the recent history.)

An updated Tobin Tax, updated for the modern times and renamed the Robin Hood tax has now been proposed by a coalition of around 50 organisations dealing with poverty, including the TUC, as a way of raising funds from banking activities towards dealing with poverty and climate change, both in the UK and abroad. The campaign features a video produced by Richard Curtis and starring Bill Nighy – and, of course, you can sign up for updates and vote (more than 4:1 in favour, so far, now that stacks of multiple ‘no’ votes have been discounted), too. ToUChstone, the TUC’s blog, has produced several posts on the initiative today as, from a capital markets perspective, has labour and capital.

[Edit 15 February: now a margin of 10:1 in favour – while the multiple ‘no’ votes appeared to have come from two IP addresses, one of which is registered to Goldman Sachs, that Great American bubble machine. Doing God’s work again, Lloyd?]

The Connect Sector of Prospect has a policy of raising awareness of and support for the Tobin Tax dating back to 2001 and this blog supports also the updated initiative: it’s another aspect of a welcome return to Keynesian economic views; in deterring short-termism, it may well have a role to play in improving (long-term) corporate governance; the activities the target of the tax are those which fit well within the definition of being, in Adair Turner’s neat turn of phrase, ‘socially useless’; and the funds it will raise ought clearly to help with the worthwhile central mission of the coalition.

Without going into all the arguments of the naysayers, some of which are less worthy than others, it seems to me that, to be successful, the initiative needs to recognise the following:

1. this is not a cheap way of raising finance to meet long-term UN goals of all countries providing 0.7% of GDP for international assistance – it has to be extra

2. this is not a way of providing bankers with a route back to social acceptability, and neither does it deal with the behaviours which caused the crisis and the need to inject huge amounts of capital to bailing out the banks – both of which are issues which need to be properly tackled. Nevertheless, we do need to understand what role (very) short-term trading plays and why those engaged in it do it, given the tiny margins being quoted; at the same time, the tax needs to target what is demonstrably ‘socially useless’ activity undertaken within the financial services sector – and this itself needs to be cut off. The City needs to recognise this, too, much more than it does.

3. the potential for City creativity needs to be recognised and the issue of accountability to pay the tax properly covered

4. the monies need to be properly ring-fenced and used for specific goals. What can’t be allowed to happen is that money raised and sent overseas then finds its way back to this (or any other western) country in carbon trading schemes.

Overall, however, an initiative well worth supporting.

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